Create an Initial Growth Plan for an Existing Amazon Business

The first 2 steps of the 5-Step Amazon Playbook are straight-forward. Create your account, listings, and backend processes, create optimized listing pages that convert, and build out a brand store the tells the story of your brand and products.

This is where many Amazon businesses get stuck. What’s next?

Some common questions at this stage are:

• What price should I set for my product?
• What promotions should I be running?
• How much should I be spending on advertising?
• How much inventory will I need to reach my goals?
• When will I achieve profitability?

What are brands to do other than to just try and pray for the best?

I’ll attempt to walk you through my process and how I think about planning in the early stages of an Amazon project once we are ready to grow a product’s sales and profits on Amazon.

1. What price should I set for my product?

This is often the first decision that needs to be made. What is the best price for our product?

Using a tool we created for this exact purpose, we can calculate the profit margin of a product based on its price, size, and weight. In the example below, the important number is the Profit Margin. We want our product to have enough of a profit margin that it can cover both promotions and advertising spend, while still have some profit left over.

The most successful Amazon sellers have profit margin of over 50%. These products are often higher priced and small & light, which makes them cheap to ship. The product in the example below has a profit margin of 38%, which is enough to build a profitable business, especially if the product is a replenish-able product that a customer is likely to buy over and over again, like a grocery item.

Note: It is very difficult to build a profitable business if your profit margin is below 30%.

2. What should I budget for ad spend and promotions?

In the example above, the product has a 38% profit margin at its current price point. This margin must cover all ad spend, promotions, and any overhead not accounted for already, such as software tools, freelancers, etc.

Promotions: We should expect to regularly offer 10% off promotions, such as Prime Exclusive Discounts and Subscribe and Save Programs. Those promotions should be at least 20% during Prime Day and Black Friday/Cyber Monday promotions periods.

Ad Spend: This leaves about room for reinvesting 20% of sales into advertising spend. While this may be enough to grow an Amazon business, that growth will be gradual. Patience is key. If you want to get more aggressive, it may make sense to raise the baseline price to increase profit margins.

One way to think of this: If you wish to sell your product at an average price of $35, then it may make sense to set your baseline price around 10% higher. This way, when you use promotions, your customers end up purchasing your product at your desired price, instead of at 10% below your desired price if using a 10% Prime Exclusive Discount or subscriber discount.​

Raising baseline price by 10%+

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We now have room to offer a 10% off promotion and spend about 25-30% of revenue on advertising spend. This will improve your chance of success and help you grow your Amazon business faster and more profitably.​

3. How much inventory will I need to reach my revenue and profit goals?

This is a very important question to ask. However, there is no definite answer. We don’t know exactly how fast your business will grow until we start to spend on advertising and promotions over an extended period.

However, we can make an educated guess. While we will probably be wrong about exactly how long it will take to reach our goals, we will be able to chart a path forward that allows for adjustments as new information becomes available.

Where do we start? Let’s start with 6 months of historical sales and then project forward from that point:

​In this example. these SKUs have been out of stock periodically, we have chosen the maximum units sold in a month for each SKU as the baseline monthly sales number. We then added an average monthly growth rate of around 10%. For some months, like November, we increase that expected growth rate due to seasonality or promotional periods like Black Friday.

It is more likely that we see big leaps in growth rate some months, contrasted with low or no growth in other months. This is totally normal. From time to time. we can make major improvements that make a huge difference in conversion rate or advertising efficiency as we gain new pieces of information.